Continued decline in villa and apartment rental rates and sales prices in Dubai – Asteco report

Report finds that villa and apartment prices fell by 4% over the quarter, with an annual drop of 11%

There continues to be a decline in villa and apartment rental rates and sales prices in Dubai, according to a new report released by Asteco, a UAE-based property services company.

According to the company’s Dubai Real Estate Report Q2 2018, villa and apartment prices fell by 4% over the quarter, with an annual drop of 11%. The decline in apartment sales was most prominent in Dubai International Financial Centre (DIFC), Discovery Gardens and Dubai Sports City, which registered a 6% fall since Q1 2018.

However, sales activity remained steady, despite an overall bearish outlook from investors and end users. This stability was mainly attributed to further project launches, many of which have increasingly attractive incentives, competitive rates and extended payment terms.

The report also highlighted the current and anticipated handovers of key projects in Dubai, with Q2 2018 seeing the launch of several new residential projects, including Amaranta 3 and Tilal Al Ghaf Phase 1 in Dubailand, as well as Zawaya – a mixed-use community in Motor City, as well as Belgravia Heights I & II in Jumeriah Village Circle (JVC).

“Generally, new developments focused on the affordable segment, resulting in a marginally more noticeable quarterly drop in sales prices at 5%, compared to 3% for mid- and high-end properties,” said John Stevens, managing director at Asteco.

He added that despite the lower number of anticipated handovers, the volume of new supply remained significant. This has contributed to an overall quarterly decrease in apartment and villa rental rates of 3% and 2%, respectively, while annual declines are more prominent at 12% and 10% respectively.

“Vacancy levels across multiple projects rose due to the supply of additional inventory. Properties with proactive management and maintenance teams succeeded in maintaining steady occupancy rates, while landlords offering discounts and additional incentives also achieved solid tenant retention. Over the next quarter, we expect further gradual but consistent softening in rental rates for all asset classes,” Stevens added.

“Vacancy levels across multiple projects rose due to the supply of additional inventory. Properties with proactive management and maintenance teams succeeded in maintaining steady occupancy rates, while landlords offering discounts and additional incentives also achieved solid tenant retention. Over the next quarter, we expect further gradual but consistent softening in rental rates for all asset classes,” Stevens added.

When compared to 2017, the highest apartment rental rate drops were recorded in Jumeirah Village (16%), followed by JBR with 15% and Jumeirah Lakes Towers, Deira and Discovery Gardens with 14% each.

Villa rental rates in Jumeirah Park and Jumeriah Village showed the most pronounced annual decrease at 15%, followed by Arabian Ranches at 11%.

The report added that approximately 3,400 residential units were handed over in Q2 2018, closely matching the first quarter. The majority of new supply is located along the new growth corridors of Sheikh Mohammed Bin Zayed Road (E311) and Emirates Road (E611).

Furthermore, an estimated total of 25,000 units are slated for delivery by the end of year. As such, Asteco has revised its 2018 supply projections for both residential units and office space downwards by 17% and 20% respectively, based on a combination of factors, including lower handover volumes in the first half of the year, and anticipated project delays.

Meanwhile, completed office inventory rose significantly compared to Q1 2018, with the addition of more than 760,000 square feet across two new developments – the 320,000sqft HSBC headquarters in Downtown Dubai and the 440,000sqft third building of the One Central project in the Trade Centre area.

“Proactive government initiatives and ongoing infrastructure development are expected to boost market sentiment and drive investment in the UAE. The latest positive announcements include the freezing of school fees for the academic year 2018-2019, as well as the introduction of a 10-year residency visa for investors and specialists, and 100% foreign ownership of companies outside free zones,” Stevens explained.

“The UAE has always been a real estate investment haven, and the new laws will attract an untapped pool of international investors seeking a tolerant country with deep-rooted values to call home.”